Key Takeaway: Gender diversity can pay off for investors as companies that promote women to CEO and CFO are likely to be more profitable and have better stock performance.

Shattering the glass ceiling isn’t just the right thing to do. Turns out it’s the profitable thing to do. 

Promoting women to executive positions leads to higher profits and better share-price performance compared with male-led companies, according to a new study from S&P Global Market Intelligence that studied 17 years of data on Russell 3000 companies. A diverse, inclusive corporate culture, and not gender-based differences in the ways that men and women lead, appears to be behind the performance boost,  the report’s author said.

“It’s not about a moral imperative; there’s an economic imperative to rectifying this disparity,” Daniel J. Sandberg, who led the study, told Karma. Sandberg is S&P Global’s senior director of quantamental research.

Companies with female CEOs and CFOs, in the two years after the women took on their roles, beat the index’s average stock performance while companies led by men were “statistically indistinguishable” from their sector peer group, the study showed. Stock-price performance went up by 20% after the appointment of a female CEO and by 8% with a female CFO. Companies with women as CFOs also generated “excess” profits of $1.8 trillion.

“It’s not about a moral imperative; there’s an economic imperative to rectifying this disparity.”

Even with that outstanding track record, women are still grossly overlooked for the top jobs. As of the beginning of 2019, the ratio of male CEOs to female ones was 19-to-1, Sandberg found. For CFOs it was 6.5-to-1.

The study, which included almost 6,000 companies that rotated through the Russell 3000 Index from 2002 to 2019, produced a sample of just 143 new female CEOs, compared with 2,317 males. For new CFOs, the figures were 435 women and 2,930 men.

“Companies that are seeking to maximize their performance should seek higher leaders based on qualifications and talent, and there should be no proviso on gender,” Sandberg said. “When we see 19 male CEOs for every female CEO, we have to ask, where is the process broken? That disparity doesn’t ring true.”

One explanation for the stronger performance by female executives may be that they have to be better qualified than male candidates to be considered for top corporate jobs, the study indicated. Sandberg applied natural-language processing analysis to show the women who reached top leadership roles had more of the achievements, education and personal traits linked with executive success than their male counterparts.

“The bar seems to be higher for female executives,” he said.

The crack in the glass ceiling seems to originate, at least in part, in the boardroom.

Women made up 23% of the directors at companies that appointed new female CEOs, compared with the average 11% overall, the study showed. And once women were in the corner offices, their ranks in the boardroom grew by a statistically significant amount — within 24 months of a female CEO’s appointment.

“The narrative that we have proposed here is we want boards to promote the most qualified person for the role,” Sandberg said. “There’s a proviso on gender when making these appointments, and that’s doing a disservice to these companies and their shareholders.”